The Hindu Business Line : Clarity on charity under service tax law

The latest among the circulars on www.servicetax.gov.in is about the word `charitable' used in the definition of `club or association service'. The circular clarifies that any exemption received under the Income Tax Act by such club or association as `public charitable institution' will be `of no consequence to levy of service tax'. What is relevant is service tax law as contained in the Finance Act, 1994 and the rules made there under.

The circular refers to two provisions, viz. Sections 65(25a) and 65(105)(zzze). The former defines `club or association' as "any person or body of persons providing services, facilities or advantages, for a subscription or any other amount". However, the definition excludes `body of persons' engaged in trade unions, promotion of agriculture, horticulture or animal husbandry, press or media, and "any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature."

The latter, that is, Section 65(105)(zzze), states that taxable service is what a club or association provides to its members, as services, facilities or advantages for a subscription or any other amount. Any exemption granted to a club or association under the provisions of Income Tax Act on the ground that it is a public charitable institution does not `automatically' exempt the club or association from the levy of service tax, says the circular.

It draws attention to definitions in Black's Law Dictionary, of `charity' and `charitable'. According to the dictionary, as cited in the circular, `charity' is "aid given to the poor, the suffering or the general community for religious, educational, economic, public safety, or medical purposes." And `charitable' means "dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received".

It is not as if all charitable institutions will come under the service tax levy. Because the officer is expected to `examine the matter on a case-by-case basis'. And his decision should be `after taking into account all material facts and statutory provisions', as guides the circular.

Can the circular impact charitable organisations engaged in providing services? On this, service tax experts are of the view that the words used in definitions determine whether charitable activity is exempted or not.

For example, the definition of `architect' in service tax law includes `any commercial concern' engaged in rendering services in the field of architecture. Thus, a charitable organisation providing architectural services can be outside the purview of service tax net, they say, because it is not a `commercial concern'.

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